After a Long Wait, Citi Connects the (150) Dots

Citi's top consumer banking executive said Wednesday that the company, which has long considered its reach into more than 100 countries to be its primary competitive advantage, has drilled down further to identify 150 major metropolitan areas as priority markets for its retail banking and cards businesses.

Those cities, which account for 30% of global gross domestic product, include 16 U.S. metropolitan areas, 18 cities in other parts of the developed world and 116 in emerging-market countries. From Los Angeles to Seoul to Rio de Janeiro, the company says, it has found common financial needs specific to urban customers, along with demographics it has long been suspected of wanting to target: the affluent and the upwardly mobile.

Offering Citi's most thorough retail strategy update in years, Medina-Mora said the company already has retail customers in 120 of the cities on its priority list, spread across the 40 countries in which its consumer division operates. "We have a consumer presence in 80% of what we believe will be the most attractive markets in global consumer banking," he told investors at a Bank of America Merrill Lynch financial services conference. "We are not starting from scratch."

Though Citi sees the biggest growth opportunity in emerging markets, Medina-Mora said it is ready to break with a long record of underinvestment in North America in order to devote resources to upgrading its execution and promoting organic growth in the United States.

He also said that Citi would spend at least $3 billion on upgrading the technology supporting its consumer business and bring all of its consumer accounts, across regions and product lines, onto a common platform within three years.

Pledges like those helped fill in some of the blanks in Citi's strategy, which is expected to get further refinements as the newly hired Cecilia Stewart and Jud Linville develop their respective plans for U.S. consumer and commercial banking and the cards business. Stewart, a Wachovia Corp. veteran, and Linville, formerly of American Express Co., report to Medina-Mora, who since January has been chief executive for consumer banking in the Americas and chairman of Citi's new global consumer council.

But there may be little Citi can do on the retail side to move the needle; like other large banks it is grappling with policy changes, interest rate risk and the law of large numbers.

"In the emerging markets there's clearly great opportunity, but the markets are thus far still pretty small," said Joshua Rosner, a bank analyst at the Graham Fisher & Co. research firm in New York. "We're getting [to the point] in the industry where the largest players are going to be looked at to hit singles over the next decade, whereas they'd been able to hit doubles, triples, homers and grand slams over the prior decade."

In any case, the vision shared by Medina-Mora was not a dramatic departure from Citi's apparent direction under Terri Dial, his predecessor in charge of North American consumer banking. Dial, who resigned in January, never spoke publicly about the strategy she had been devising in her two years at Citi.

But when the company last year abandoned plans for U.S. branch openings outside New York, Miami and other major cities where it already had a strong presence, investors and analysts gleaned from the decision that Citi would focus on markets where it could benefit from concentration and from growing consumer affluence.

Medina-Mora confirmed that view Wednesday.

"In retail banking, we will focus our growth on the emerging-affluent and affluent sectors in key cities," he said, noting that the strategy plays to Citi's natural strengths. "One of every six households in the U.S. has at least one Citi product, most probably a card," he said. Among the affluent, the penetration rate is even higher, with one in four households having at least one Citi product.

The focus on the wealthiest consumers and the rising middle class will be applied consistently across regions, Medina-Mora said.

Citi hopes to set other global standards for itself based on successes it has had with different business lines in different parts of the world.

The work that bankers have done in tapping retail clients through corporate relationships, something that Citi has excelled at in Mexico, India and Russia, will be exported to other markets, Medina-Mora said. And the so-called "smart branches" that the company has been experimenting with in Japan since April will be closely replicated elsewhere.

These branches feature touch-screen panels, automated teller machine help via videoconference and other high-tech flourishes intended to make customers feel that they are in control of the information they receive and how they receive it. The first U.S. smart branch is scheduled to open in New York's Union Square in December.

Meanwhile, a technology platform developed in Mexico and refined in the Asia-Pacific region will be installed in the U.S. next year and then in Brazil and beyond so that 90% of accounts are managed on a common system by 2013, Medina-Mora said.